Telefónica enters ‘new era’ with major business restructure

Group CEO José María Álvarez-Pallete has unveiled a five-point strategy which include prioritising Telefónica’s growth markets.

The four markets to be prioritised will be the UK, Spain, Germany and Brazil, while the other points include spinning off the rest of the LATAM businesses into a single unit, the creation of a cybersecurity, IOT and AI division and a tower unit, as well as restructuring the management structure. Álvarez-Pallete claims the new strategy will add an additional €2 billion a year to group revenues.

“Geopolitical, macroeconomic and regulatory uncertainties, and high competition in the sector require an increasingly demanding allocation of capital,” said Álvarez-Pallete.

“If in the past the low penetration of voice and data services assured future growth, the current maturity of the markets and the appearance of new competitors subject to different rules demand a highly focused strategic approach.”

The plan will aim to prioritise areas where the business sees greatest opportunity for profits, but perhaps also the most significant threats. In the UK and Germany, for example, the national business units are pure-play mobile operators. This will allow Telefónica to concentrate investments, though it does present the risk of being undermined by converged product offerings, a strategy of most major rivals in these markets.

For the moment, it is not entirely clear how this plan will materially impact operations in these markets, though it is a sensible business strategy. The four markets mentioned above account for 218 subscribers, 63% of the total across all group operations, as well as 80% of the group revenues. Telefónica is simply doubling down on the markets where it has seen the most joy in recent years.

The creation of two additional business units also create new opportunities to drive revenues for multinational partners. For Telefónica Tech, the team will target three segments which are aggressively expanding today, and the infrastructure business unit has been an ambition of Telefónica for months. These are country-agnostic business units, leveraging the global expanse of Telefónica’s footprint; it is a very sensible and reasonable approach.

Moving across to the LATAM business unit, it does appear the business is attempting to isolate a region which has proven difficult in recent years.

“Our operations in Latin America were the growth engine of the company until a few years ago,” said Álvarez-Pallete.

“However, the particular conditions in these markets have had an impact on the business, reducing its contribution in recent years for different reasons and despite the enormous efforts of our local teams, which have always shown a strong commitment.”

This is not to say there is not money to be made in LATAM, or that the creation of a separate business unit should be viewed as a negative. The Latin American nations are a completely different beast, with very complex challenges. Perhaps removing Brazil, this region could not be more difficult from Europe. Once again, it is a perfectly reasonable approach to separate the business, achieve scale economics through combining the individual countries under one structure and appointing a specific management team with its own strategy.

Although Telefónica is not necessarily a business which is in trouble, the billions of debt which it is working hard to clear creates a slight position of discomfort. This is a business which needs to do something different, as well as prioritise investment in stable markets where threats are becoming increasingly apparent. The UK and Germany are markets where it could find itself in a bit of bother unless rivals aggressive moves are countered. This does look like an effective and reasonable approach to meet the challenges.

Former Cisco boss thinks tech leaders are too cocky

John Chambers, who ran Cisco for 20 years, reckons the leaders of tech companies need to dial down the arrogance a bit.

He made the comment to Yahoo Finance in the context of the tech venture capital business he started up since stepping down from Cisco. “I worry about our industry – it’s a tug-of-war between overconfidence, bordering on arrogance, among some of the leaders,” He said. “It’s hard to get that arrogance out of them.”

Chambers’ major issue with this mindset is that arrogance can prevent the people running tech startups from continuing to learn and grow, which makes them less attractive investment prospects. “For the companies I select, if they are arrogant I don’t touch it,” he said. “I have developed a criteria. If the CEO doesn’t want to be coached, if they don’t know what they don’t know, and truly if the chemistry is off, I don’t touch them.”

The VC business is called JC2 Ventures, so named because Chambers runs it with his son. Showing the kind of humility he expects of his fellow tech moguls Chambers named his son after himself and JC2 Ventures apparently has 12 companies in its investment portfolio.

Digital Minister visits Tate Modern instead of figuring out what job actually is

Two days after reshuffling the UK cabinet, key roles are yet to be handed out, but DCMS Minister Michael Ellis still found some time to visit the Tate Modern for Modigliani exhibition.

Previous Minister for Digital Matt Hancock received a promotion, now being the Secretary of State for Digital, Culture, Media and Sport, essentially in charge of the entire department, though he has a few new names to keep in line. Ellis and Margot James are two new Ministerial entries to the department, though what they will actually do is unknown (at the time of writing).

Whilst the majority of us might be concerned that our job was undefined, such minor details of course do not bother politicians. Especially when there is an opportunity to shake some hands and show off the pearly whites with a photo op. As you can see below, Ellis seems happy with his new remit:

We were curious about who would be taking over the important task of readying the UK for the connected economy, and ensuring the country’s digital credentials don’t continue to slide downwards, so we called the Department’s media team. During the call, we were told decision on who would be leading what aspect of the department has not yet been made, and we should keep an eye out on the DCMS Twitter page for any announcements. This might be this afternoon (January 10), but more likely tomorrow morning.

We did wonder why there was a hold up, but initially assumed it was just a case of the public sector moving at its usual pace. But with Ellis galivanting around London taking in the sites, while the rest of the poor team are slumming it in front of a laptop, the delay is starting to make a bit more sense.

Just so you are aware, the Minister responsible for Digital will oversee the following areas:

  • Broadband and mobile connectivity
  • Broadcasting
  • Creative industries
  • Cyber security
  • Data
  • Digital Charter
  • Digital economy
  • Digital skills and inclusion
  • Digital technology
  • Internet governance
  • Media
  • Online safety
  • Spectrum
  • Telecoms markets and resilience

As you can see, these are all areas which might be considered crucial as the country readies itself for the era of connectivity and internet businesses.

If you do happen to spot Ellis wandering around London’s Southbank this afternoon, feel free to give him a prod and tell him to get back into the office. The London Eye will still be there on Saturday.